Section: 3 Market Structure
Sub Section: 3 Breadth
The breadth of the market is a measure of the extent to which movement in a market index is reflected widely in the stock price movement. The most common measure of breadth is the spread between the number of stocks that advance and decline in price. The Advance/Decline Line ("A/D Line") is a cumulative total of the Advancing-Declining Issues indicator. When compared to the movement of a market index (e.g., Dow Jones Industrials, S&P 500, etc) the A/D Line has proven to be an effective gauge of the stock market's strength. The A/D Line is helpful when measuring overall market strength. When more stocks are advancing than declining, the A/D Line moves up (and vice versa). Many investors feel that the A/D Line shows market strength better than more commonly used indices. By studying the trend of the A/D Line, you can see if the market is in a rising or falling trend, if the trend is still intact, and how long the current trend has prevailed. Another way to use the A/D Line is to look for a divergence between the market index and the A/D Line. Often, an end to a bull market can be forecasted when the A/D Line begins to round over while the market index is still trying to make new highs. Typically, when a divergence develops between the market index and the A/D Line, the index corrects itself and goes the direction of the A/D Line.